Base Metals - Outlook IMC Commodity Outlook Seminar th May, 2016 Naveen Mathur Associate Director Commodities and Currencies

Agenda Overview of macro economic scenario Chinese dilemma Base metals performance so far in 2016 Best and Worst performers of 2016 – Copper – Nickel – Zinc

Overview of macro economic scenario Markets are currently in a state of frenzy created by prospects of June’16 US rate hike Fed in Dec’15 raised its interest-rate target; indicated plans for four more increases in 2016 On the contrary, ECB committed to add more than €1 trillion ($1.13 trillion) to its balance sheet through September 2016 Likewise, the Bank of Japan, in Oct’14 said it would accelerate its own program of asset purchases to an annual pace of about ¥80 trillion This divergence in monetary policy among the world’s most influential central banks has sparked volatility in global currency markets

Chinese dilemma The year 2016 has started on a bitter note for China Economic concerns in China has shown little signs of easing despite measures from PBoC and govt The Asian giant has shown signs of slowing further this year Both S&P and Moody’s cut its outlook for the Chinese government’s credit rating to negative in Mar’16 Recent data disappointing; falling import-export, weak GDP and industrial production in April’16 Only saving grace is forex reserves which rose to $3.22 trillion in April’16 4

5 China’s shift towards a more service-based economy

Base metals performance so far in 2016 Base metals witnessed a negative performance in Q Situation, however changed for the better in April’16, leading to recovery in prices Increase in China's industrial output along with rising property prices suggested an economic recovery But, it did not last long as the rising bets of US rate hike hurt risk appetite Besides, 30 percent surge in crude oil prices provided much needed relief

Copper The leader metal is among the worst performers in 2016 Biggest producers refrained from cutting output – Chile’s Codelco said it would rather restrain its costs than cut output Copper output in Peru too surged 46 percent in Mar’16 Stock situation offers no support either – Shanghai stocks are up about 34 percent since the start of 2016 LME stocks too climbed to 156,000 tonnes from near 140,000 tonnes in early April’16 State Reserves Bureau reported to have confirmed a target of 150k tonnes of copper purchases via public tender for 2016

8 IMF is expecting Peru’s Copper production to grow 3.7% and 4.1% in 2016 and 2017, respectively Production at world number one copper producer Codelco, rose 8.4 percent to 469,800 tonnes in Q12016 China's largest copper producer, Jiangxi, recently said that the recent output cuts have been offset by new capacity in the country Copper output at Glencore fell 4% in Q12016 in line with its promise to cut back production in Sep’15 In light of these developments, ICSG changed its earlier stance from deficit to balanced in May’16 forecast Rocky road ahead for Copper

Nickel 9 Nickel, second worst performer; prices plunged to 12-year lows Falling global steel output a dampener LME total nickel stocks are high, corresponding to more than 20 percent of annual consumption ShFE stocks, meanwhile, have swelled to 91,715 tonnes from just 3,100 tonnes this time last year Fall in Chinese NPI production by 18 percent was more than offset by a 132 percent jump in refined imports in 2015 Supply remained rich as the El Nino weather in Philippine allowed them to mine until 2015 yearend

10 INSG widened the market deficit forecast from Mar’16 citing demand surge from China Earlier, it had indicated the Nickel market to end four years of surplus in 2016 Russian giant Norilsk expects nickel output from its core operations to drop in 2016 Philippine Nickel Miners Association, which accounts for 60% of domestic nickel ore output, agreed to reduce ore output this year by as much as 20% over 2015 World Steel Association forecast China's steel demand to fall 4% in 2016 after a 5.4% slide in Output cuts expected to boost Nickel

Zinc 11 Zinc the biggest gainer, has benefited from mothballed or cut capacity in ,000 t 675,000 t 500,000 t

12 Zinc to be the most bullish bet for 2016 Looming shortage in zinc supply prompted the ILZSG to widen its 2016 deficit forecast from 152,000 tonnes to 352,000 tonnes Mine supply outside China hurt following combination of mine closures and price-related cutbacks LME zinc inventories, too have fallen below 400,000t, leaving supplies at roughly 10 days of global demand Shanghai inventories have plunged 9 percent since Mar’16 Weak demand to galvanize steel in China although led to 22 gain in Shanghai stocks in 2016

Currency factor 13 BUY NSE USDINR BETWEEN , SL 65.10, TGT (CMP ) 6 - month Support 1Support 2CMPResistance 1Resistance 2 USD INR DX

Technical levels 14 MCX Support 1Support 2CMPResistance 1Resistance 2Trend 3 - monthCopper Sideways to up Nickel Down Zinc Up 6 - monthCopper Sideways to up Nickel Down Zinc Up LME Support 1Support 2CMPResistance 1Resistance monthCopper Nickel Zinc

15 Thank you!!!